Beijing’s Big Push for Startups Should ‘Foster an Ideal Environment’ for the Bitcoin Industry

In light of Alibaba’s success story, the chief administrative authority of the People’s Republic of China, the State Council, is looking to boost entrepreneurship and attract venture capital funds to lift Chinese startups.

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In light of Alibaba’s success story, the chief administrative authority of the People’s Republic of China, the State Council, is looking to boost entrepreneurship and attract venture capital funds to lift Chinese startups.

On March 11, the State Council issued a call for ministries and local governments to support innovation and startups, and “encourage the general public to start their own businesses.”

According to the release:

“Hundreds of thousands of people's passion for innovation should be encouraged to build the new engine for economic development.”

The government, which is particularly targeting technology experts and university students, wants to stimulate entrepreneurship by offering resources to help get young companies and projects off the ground.

Additionally, the leadership will focus on finding ways to attract venture capital funds and encourage angel investors to bet on Chinese startups’ potential for future growth.

While the Chinese government is putting innovation and startups as its top priority, the Bitcoin ecosystem is burgeoning and has attracted more than US$667 million in venture capital and angel investments since the advent of the Bitcoin protocol in 2009.

According to Robert Kuhne, Analyst at Huobi Tianxia Internet Technology Company, owner and operator of the Chinese digital currency trading platform Huobi, the recent news of the State Council should significantly boost the local Bitcoin ecosystem.

Kuhne told CoinTelegraph:

“The Chinese government's attitude toward innovation and entrepreneurship in general is quite good, and this does indeed help foster an ideal environment for the development of the Bitcoin industry.”

However, because of Bitcoin’s financial and political implications, the technology is “a special case of technological innovation” that requires other aspects of government policy to be considered.

Wait-and-See

On December 5, 2013, China issued one significant policy that prohibits traditional financial institutions and payment processors from dealing with bitcoin directly. While the news made several entrepreneurs grind their teeth, others suggest that it has, in fact, enabled healthy development of the local Bitcoin industry.

According to Kuhne, this particular directive is intended to protect the financial system, as “the Chinese government is cautious about the potential risks of Bitcoin.” As of today, Bitcoin is defined as a “virtual commodity” and is legal to own and trade privately in China, he indicated.

Overall, Kuhne argued that the Chinese government has been rather soft-handed with Bitcoin ventures and its “wait-and-see” approach has enabled the industry to grow steadily, compared to other jurisdictions:

“The Chinese government's recent track record shows that they are much more sophisticated than their counterparts in places like Russia, Bolivia, Ecuador, and, in many respects, politician regulators in the United States, Australia, and other so-called ‘free world’ countries.”

“We have already seen a tremendous amount of Bitcoin entrepreneurship in China, most notably in bitcoin exchanges and bitcoin mining, and we expect this to continue,” he added.

Venture Capital

Meanwhile, venture capital investment into Chinese Bitcoin startups is lagging far behind the amount of cash that has been injected into American startups. One of the reasons that might explain this tendency is the political risk, Kuhne indicated.

“Investors are still fearful that the Chinese government will reverse course in the future,” he argued. “If the government wanted to fix this problem, it could simply give a green light to remove all ambiguity about its future intentions toward Bitcoin.”

However, the consultant is not convinced that anything as such will happen anytime soon:

“The government still wants to hedge its position and wait and see whether bitcoin will turn out to be something good or bad. Now bitcoin is still too small for them to feel any urgency to act in support or opposition to it. So Bitcoin entrepreneurs and investors in China just need to accept that there is a certain level of political risk.”

Huobi is one of China’s “Big Three” and one of the world’s leading digital currency exchanges in volume with an estimated of US$21m worth of BTC, CNY traded everyday, according to Coinmarketcap.

Last week, Huobi’s USD bitcoin trading platform BitYes, launched two new functions: margin trading and P2P lending. The company said in a release:

“Huobi is now firmly in the top five BTC-USD exchanges, and based on the momentum from adding margin trading/P2P lending and two big new features that will be launched in the coming weeks, we expect to be in the top three USD exchanges by the middle of the year.”

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